How To Determine If A Deal Is Good For Real Estate Investing
Being able to recognize a good deal is crucial to the success of a in real estate investing business. While you may come across so many properties for sale, not all of them qualify as profitable real estate investments.
So which ones are good and which ones are not?
To be successful in real estate investing, you must follow a simple business model that you understand. It is necessary to develop ball-park figures that help you analyze deals whether you wholesale properties, do lease options, fix and flip, keep as rentals, etc.
These 3 steps are necessary in analyzing your deals.
1)Pre-screen your sellers
You must pre-screen all your motivated sellers to gather all the information necessary to analyze your deals. It is important that you invest in a real estate investor website that helps you pre-educate motivated sellers, pre-screen them and pre-negotiate with them.
By the time you get a deal, you have all the information you need to make a decision.
If you pre-screen them over the phone, you must have a simple script with questions that help you calculate your numbers.
2)Run comparable sales
You must then determine the current fair market value if the property was to be sold TODAY in perfect condition.
3)Analyze your offer
Armed with this information, you can then determine if you have a deal or not. Of course, you must have the mortgage balance and asking price to do this.
If you can buy the house for 70 cents on the dollar minus repairs, this should probably qualify as a wholesale deal. In a depressed real estate market, 65% minus repairs is more marketable.
You must also calculate your profit in this calculation. That means to make $5000, you should buy it at 65% minus repairs minus $5000.
You have to remember that the lower your buying price, the lower you can flip it and the faster you can sell it.
b)Rentals and lease options
If the house needs no repairs and does not qualify as a wholesale deal, then it probably qualifies as a good deal for rentals and lease options.
You therefore need to know the rental rates in the area. For this to be a viable deal, the monthly mortgage payment must be lower than the monthly rental rate. For instance if the rental rate is $1500 and the mortgage payment is $1150, you have at least $350 cash flow per month.
You can fetch a higher cash flow in lease options, though it is a good idea to use rental rates.
Remember you still need equity in these properties because you will need to cash out in the future.
A property can qualify as a short sale if the mortgage payment is late, and none of the options above can work.
Typically, properties with more than one mortgage are better short sale deals than those with one mortgage.
We have addressed different short sale situations in different articles.
by: Simon Machcria